Rising car payments and insurance weigh on borrowers’ ability to qualify
As car ownership costs continue to climb, brokers across Canada face a growing challenge: more clients arrive at the table already stretched by their vehicles before a mortgage application even began.
The pressure started with expectations. “More than 80 per cent of Canadians expect to pay less than $750 per month for a car payment, while 32 per cent expect to pay less than $250,” according to a recent survey from Deloitte Touche Tohmatsu Ltd.
Yet J.D. Power data showed average monthly payments of nearly $900 for new cars and more than $760 for used vehicles.
Auto costs collide with debt service tests
AutoTrader predicted those payments would not ease. “If new car prices climb due to the trade unclarity with the United States, we may see an increase in monthly payments to over $1,000, which would be a first in Canada,” the company said in a recent report.
“With no expectation of a significant decline in vehicle prices, limited prospects for meaningful interest rate cuts, and assuming consumer demand remains broadly stable, we expect monthly payments to remain elevated but largely steady in 2026,” it said.
Those obligations feed directly into lenders’ total debt service (TDS) calculations, where car loans, credit cards and other monthly payments sit alongside housing costs. Most lenders prefer a TDS ratio below the low‑40% range, meaning each additional auto dollar reduces the room left for a mortgage.
When a borrower arrives with a $900–$1,000 car payment, that line item immediately eats into the TDS room that could otherwise support a larger mortgage. A household earning $120,000, for example, might fit comfortably under a 44% TDS cap with a moderate vehicle payment.
Add a second high car payment or expensive insurance, and the same family could be pushed over common lender thresholds, forcing a lower mortgage amount or a decline.
A 2024 analysis found the average monthly cost of owning a car in Calgary – including financing, gas, insurance and maintenance – totalled $1,427, or 54% of the city’s average mortgage payment. In Newfoundland and Labrador, car costs amounted to 107% of the average monthly mortgage payment.
Insurance and longer loans keep pressure high
Even as vehicle thefts eased, insurance relief proved limited. A Ratehub.ca report said “the cost of claims alone is still higher than pre-pandemic levels, due to more expensive vehicles, repairs and maintenance.”
Many buyers underestimated how long they would be in car debt: 81% expected loans of five years or less, but J.D. Power data indicated most loans actually stretched to seven years, and only 5% of consumers anticipated terms that long. That meant high payments followed borrowers well into future renewal cycles, showing up again and again when lenders re‑underwrote the file.
Deloitte’s 2026 Global Automotive Consumer Study found that higher prices and borrowing costs pushed affordability to the forefront, forcing many consumers to rethink what they consider good value in a vehicle.
Elevated premiums, pricier repairs and maintenance, and higher fuel or charging costs leave less true disposable income, even if those expenses do not always appear line‑by‑line in underwriting.
That same dynamic now sits at the centre of mortgage conversations, as brokers work with borrowers whose non‑mortgage debts already climbed to $553.1 billion by late 2023 and continue to rise.
For risk teams, a borrower with thin residual cash flow after car, housing and other obligations represent a higher probability of financial stress if interest rates rise again or income falls.
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